Teamsters Canada Rail Conference

Canadian National Railway Co. says it’s beginning to see early signs of recovery after months of dramatically declining volumes.

In particular, grain and coal shipments from the U.S. Midwest are starting to come back online, which the country’s largest railway is taking as a hopeful sign of things to come after watching its volumes fall by 15% since the start of the year compared to the same period in 2008.

"We’re starting to get some early indications of some people coming back," said Gordon Tafton, CN’s vice-president of the southern region, at a conference in Toronto. "I’m hopeful from some of the early indications that by the second quarter we’re going start seeing some things picking up."

However, he cautioned, that there have been plenty of "peaks and valleys" in the railroad’s volumes since the economy went south.

"You just don’t know right now," he said. "In my 31 years of railroading, this is about as dramatic as its been."

Transportation stocks, like the railways, are good indicators of economic activity; while they are often the first to be hit by a recession, they are also one of the first to recover.

David Newman, National Bank Financial analyst, said he believes the time is nearly right for investors to jump on these types of stocks with some "very early signs of stabilization" forming.

If there were to be an economic recovery in 2010, like some have suggested, Mr. Newman said the railways would be one of the first to rebound.

"Transportation stocks have started to rally off recent lows, any positive confirmation and the stock could run and they do run well ahead of an economic recovery," he said.

However, CN’s smaller domestic rival, Canadian Pacific Railway Ltd., which has seen its volumes fall 16% since the start of the year, is certainly a lot more cautious in its outlook. CP said Tuesday it had not ruled out further capital expenditure cuts this year if volumes continued to decline.

"Late January and February saw some strength, but more recently the declines have become more severe," said Kathryn McQuade, CP chief financial officer. Moreover, Ms. McQuade said she considered the railway’s intermodal business to be the "bellweather for North American consumer confidence."

CP’s international intermodal business has fallen 19% since the start of the year, and 12% domestically, she said, adding the railway has already parked 350 locomotives and more than 15,000 railcars to compensate for the declining volumes. It has also laid off 1,600 workers.